Tips to Teach Kids About Money

We may not even realize it, but most of our attitudes, fears and habits around money are formed when we are kids. How much our families made, how much they spent and even how much of an allowance we got, greatly influence how we feel and react to the lack of or the abundance of the greenback.

Kids learn the basics in school — reading, writing and arithmetic. But schools avoid almost any instruction about money. If they do offer a class, it may be an elective in high school, long after money habits have been formed.

I believe it’s important to start talking about finances early, when kids are young. You can begin to share your values and help kids shape their views on money in a culture that places a premium on “things,” not savings.

While we can’t shelter our children, we can teach them. It’s why I am sharing a guide of practical tips that I believe will help put your kids on the right path.

1. Teaching delayed gratification. This is the hard part. Some of us are better than others, but few have truly mastered the art of patience. After all, we are human!

Look at it another way for kids. Anticipation can be half the fun! It’s the journey. Think about it:  your kids awaiting the arrival of Santa, or the excitement that precedes going to an amusement park or on an upcoming family trip.

If they want to buy a pricey item, help them save for it. You can lend support by setting up various methods for savings. I remember the piggy bank. Money goes in, but never really comes out. Instead, consider setting up three jars: One for savings, one for giving, and one for spending.

2. Incorporate giving it away. I believe the giving jar is as important, if not more important, than the savings jar.

Do your children have a cause that resonates in their heart? Do they want to give to their church? Is there a local food bank or animal shelter your daughter or son can assist with donations?

Learning to let go and help those who are in need will create a stronger sense of altruism and selflessness that, if taught early, will blossom in them as adults.

When it comes to charity, let their treasure follow their heart.

3. Kids need money. Theory without practice won’t work. Kids need a hands-on lesson. You may start with an allowance (some refer to it as a commission)—you may pay kids for various chores, or both. That’s a parenting preference, and there are advantages to both.

What is an appropriate allowance? According to a study by RoosterMoney published by The Balance, the weekly allowance earned by a 4-year-old averages $3.76. At 8 years of age, an allowance averages $7.27 per week. At 12, the allowance is $9.85 and $12.26 at 14.

The study offers reasonable guidelines, but you may adjust at your discretion.

What about birthday gifts, Christmas gifts, etc.? Set goals with your children, but I lean heavily toward the savings bucket. Those annual gifts will add up over the years. Your kids could graduate high school with a tidy sum of cash if they have the discipline to save.

4. Teach by example. I remember a time I paid for my purchase at the gasoline pump, got back into my car, and drove away.

 My young daughter accused me of stealing!

She understood the idea that “what’s not ours isn’t ours,” but she didn’t grasp the concept of “plastic money.”

 I explained how I paid without going into the store, discussed the concept of a credit card, and emphasized these purchases are always paid in full at the end of each month. Today, I still impart the benefits and dangers of credit cards.

Was this a lifetime lesson for her? I certainly remember helping my parents pay their credit card balances off in full each month.

In addition, consider using lists when shopping. Your children will see that it helps avoid impulse buys. And, as kids grow older and the discussions are age appropriate, explain why you try to avoid impulse purchases. Oh and it goes without saying: never shop for groceries/food when you’re hungry.

Use various examples from your own life when you teach your kids about the importance of money and savings.

5. Encourage summer and after-school jobs. Trading time for cash via a job helps kids learn the invaluable lesson of hard work. It also supplements savings and provides spending money.

Cutting your own or the neighbor’s grass, shoveling your own snow or the neighbor’s snow, yard work, a lemonade stand, babysitting, helping in the family business, working retail, household chores, or working as a lifeguard are options.

Besides the extra cash, they will learn a strong sense of pride and responsibility that will carry over into adulthood.

6. Open a savings account. Not that long ago, a savings account earned a respectable interest rate. That’s not the case today. Still, a savings account helps kids learn.

A 5-year-old may not need a savings account, but adulthood isn’t far away for a teen or pre-teen. As young adults they will have a checking account, debit card, and eventually a credit card. Baby steps in the right direction will ease the transition.

As they grow older, discuss the benefits of investing with your kids. Outside of a college savings account, you may open an investment account or Roth IRA in their name and teach them about investing. You could start it with seed money and have them contribute on a regular basis (they need earned income to contribute to a Roth IRA). More importantly, help them buy into a savings goal. That way, they will take ownership.

If you’re unsure about how to start the process, we’d be happy to point you in the right direction.

7. There’s an app for that. Today, there are mobile apps that can help kids. Bankaroo, iAllowance, and PiggyBot are just a few. Feel free to look online for one you feel is most appropriate for your child.

8. Guide them with goal setting. Are they trying to save for something? Help them come up with a plan and incentivize with matching funds. Companies do this with 401(k)’s, why can’t parents?

Discuss the importance of needs versus wants. A teenager may need a bicycle. But do they need one with all the bells and whistles? Or, are there reasonably priced bikes that won’t bust the savings account?

9. Money isn’t everything. Yes, it’s important. It gives us choices. But by itself, money can’t buy happiness.

10. Let them make mistakes. Ashley LeBaron, a graduate student at the University of Arizona, said, “Let them make mistakes so you can help them learn from them, and help them develop habits before they’re on their own, when the consequences are a lot bigger and they’re dealing with larger amounts of money.”

Not surprisingly, her research showed those who had practical experience with money during childhood learned how to work hard, how to better manage money, and how to spend it wisely.

That may be the most important desired outcome.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

 

Big Changes Coming to Retirement Plans

There are multiple bills before Congress now that are intended to help IRA owners and  participants invested  in workplace retirement plans such as 401(k)s. The proposals have some overlapping provisions, along with a number of important differences.

The House of Representatives passed a retirement bill (known as the SECURE Act) on Thursday which includes an assortment of changes for participants in 401(k) plans and owners of IRA’s. The Senate may be poised to pass the bill, or a similar one, quickly and send it to the president, who is expected to sign it. Here’s a look ahead:

Convert your IRA Into an Annuity

It’ll become easier to convert your retirement savings into a steady lifetime income—a feature common to old-fashioned pensions—by buying an annuity in a 401(k)-style retirement plan. Currently, only 9% of employers offer this option, according to Vanguard Group Inc.  Employers would be able to choose whether to offer an annuity and, if so, which type to offer.

Keep Contributing after Age 70½

The bill repeals the age cap for contributing to a traditional IRA, currently 70½, making it easier for people with taxable compensation to continue saving if they continue to work.

Defer Required Minimum Distributions Until Age 72

Under current rules, you must start taking minimum (taxable) withdrawals from your IRA or 401(k) when you turn age 70½. Under the new bill, the age to start taking required taxable withdrawals from 401(k)s and IRAs would increase to 72.

See How much Income Your 401(k) Supports

The legislation would also make it easier for employees to understand how much monthly income their 401(k) balance supports by requiring employers to disclose an estimate on 401(k) statements. So participants would see not only their account balance on their statements, but also a lifetime stream of monthly payments based on expected-mortality tables.

Part-time Employees Can now Participate in 401(k)s

The bill requires 401(k)-style retirement plans to allow long-tenured part-time employees working more than 500 hours a year (employed for at least three years) to participate.

Penalty-free Withdrawals for Expenses of Adoptions or Child-birth

The bill would allow you to take penalty-free distributions from 401(k)s and IRAs of up to $5,000 within a year of the birth or adoption of a child to cover associated expenses (normally, a 10% penalty tax applies for pre-age-59½ withdrawals). You will still owe taxes on the withdrawal.

Inherited IRA’s “Stretch” Limited to 10 Years

Currently, with a few exceptions, those who inherit an IRA can elect to take required minimum distributions over their lifetimes, which could stretch out for decades. Under the bill, heirs would no longer be able to liquidate the balance over their lifetime and stretch out tax payments. Instead, if you inherit a tax-advantaged retirement account after Dec. 31, 2019, you must withdraw the money within a decade of the IRA owner’s death and pay any taxes due.

Exceptions are provided for surviving spouses and minor children (under 18), folks who are less than 10 years younger than the account owner, and the chronically disabled. Planning distributions during this 10 year period will be crucial to heirs to avoid the highest tax rates from large distributions.

Utilize 529 Education Savings Plan Money To Pay off Student Loans

You’d be able to withdraw as much as $10,000 from a 529 education-savings plan for repayments of some student loans (including siblings), registered apprenticeships and homeschooling costs.

Group 401(k) Plans

An estimated 42% of private-sector workers don’t have access to a workplace retirement-savings plan. Under the bill, employers without retirement plans would have the option to band together to offer a 401(k)-type plan if they choose.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Source: Wall Street Journal

 

 

What’s Going on in the Markets: April 28, 2019

It’s no surprise to anyone paying attention to financial news that the stock market, as measured by the S&P 500 index, closed at an all-time high last Friday. It was one measly point away from the all-time intra-day high set on September 21, 2018 (2940.91). The technology heavy NASDAQ indexes have already surpassed their all-time 2018 highs.

You’d think at new all-time highs, the masses would be euphoric and pouring money into the stock market hand-over-fist. But alas, that’s not the case at all. The rise from what I like to call the “Christmas Eve Stock Market Massacre of 2018” has been one of the most distrusted and hated rallies I’ve ever seen in my over forty years of following the stock markets. Ironically, that’s what might keep the market from falling over and moving higher, at least temporarily.

I’ll be the first to admit that I personally haven’t fully embraced the 24% rally from the Christmas Eve bottom. It’s been a torrent advance that has given latecomers (as well as early sellers) very few low-risk opportunities to jump in. That’s to say, pullbacks since Santa Claus came calling have been shallow and fleeting. Bull markets tend to be that way. Virtually every portfolio manager and investor I talked to was over-invested going into the 4th quarter 2018 swoon, and under-invested during the 1st quarter 2019 relentless advance.

Such is life investing in the stock markets.

Pundits would say that it was the Federal Reserve Chairman’s walking back talk of planned interest rate hikes in 2019 as the proximate cause for the rally. Markets love low interest rates (cheap money) as companies borrow even more money to buy back their own stock. Lower interest rates for longer have always meant corporate earnings can grow a bit faster with less drag from servicing (paying down) debt and financing expansion plans.

If the promise of lower interest rates for longer is the proximate cause for the rally, then recent positive economic news might cause the “data dependent” federal reserve to rethink the interest rate pause. A federal reserve board meeting is scheduled for this week, though the chance of an interest rate hike announcement at this meeting is virtually nil.

Just this past Friday, what was widely forecast as a coming dismal 1st quarter 2019 gross domestic product figure (under 1%), turned out to be more than thrice as good, coming instead at 3.2%.

Also this past week, while existing home sales came in 4.9% below expectations, new home sales came in almost 4.5% above expectations. In addition, durable goods orders also came in much better than expected. Finally, weekly jobless claims continue to be low. The March monthly jobs report will be announced on Friday May 3.

Expected to be dismal as well, first quarter 2019 corporate earnings reports have also continued to surprise to the upside. So far, 230 of the S&P 500 have now reported Q1 2019 earnings, and the reported Earnings Per Share (EPS) growth rate for the index is up about 2%. Granted, when companies lower expectation ahead of time, beating them becomes the norm (games companies play!)

So should we throw caution to the wind, set aside all hedges and invest all idle cash since so little seems to derail this charging bull market (e.g., the still unsettled trade wars, the Mueller Report, rising debt levels, the never-ending Brexit debacle, slower global growth, higher gas prices, etc.)?

In a word, no.

While it appears that the markets will continue to move higher in the near term, the risk-reward ratio at these levels does not favor heavy deployments of capital. Getting to a previous market high doesn’t necessarily mean we’re going to smash through those old highs and rally another 5-10% immediately. After all, there are many regretful buyers from the 2018 highs who can’t wait to get out at even-money if given that opportunity (exclaiming the famous phrase anyone unexpectedly caught in a nearly 20% stock market drop “never again!”).

That incoming supply of shares from regretful buyers will likely cause a long battle around last year’s highs, making for a pause in the upward momentum. Besides, after a nearly 25% run, the market is way overdue for a break.

A Wall of Worry?

In addition to the still unresolved trade wars and ongoing Brexit discussions, we have the following worries on the table (acknowledging that the market likes to climb a wall of worry):

  1. Recession Fears: an inverted interest rate curve, where short term rates are higher than longer term rates, has historically been a warning flag for the economy, though the lead time to a recession has been 11 months on average. In fact, there has been only one instance where the yield curve inverted without a U.S. recession, in January 1966. It is worth noting, however, that there was still a bear market during that period, which began just one month after inversion.
  2. Inflation Fears: as inflation indicators have eased since the middle of 2018, investors and economists alike have pushed this all-important economic barometer to the back of their minds. However, inflationary pressures, in the form of wage hikes, could reemerge in the near future, forcing the Federal Reserve to again take action when they least want to do so.
  3. Corporate Debt: over the course of this economic cycle, business debt has skyrocketed as U.S. corporations have issued record amounts of debt.  Non-Financial Business Debt as a percentage of GDP is close to an all-time high, and well in excess of the levels reached at the beginning of the last three recessions. If the economy slips into recession, marginally profitable companies will be unable to pay back interest on their debt, let alone the principal.
  4. Small Business Optimism: both small business owners and CEOs are not as enthusiastic as consumers or investors. Small business confidence fell sharply in the closing months of 2018 and has shown little propensity to recover. Corporate CEO confidence experienced an even bigger hit, with the same inability to rebound from these depressed levels. Business owners are most likely feeling the pressures of a tight labor market, rising wages, and squeezed profit margins. That could spell trouble for earnings and business spending ahead.

So What To Do Now?

The economy is stable and employment is strong. At this point, blue chip indexes have surpassed or are very close to surpassing their previous highs, tempting investors to climb aboard for another potential leg upward. But should you?

The financial planning answer to that question is that it depends on your goals, time-frame and risk tolerance. But the more realistic answer is that it really depends on your current investment level and your confidence that we’re just going to sail higher. While in the long run the market trends higher, no one I know of is a fan of investing at a potential top.

I suggest that you think back to how you were feeling in December of 2018, and if you felt that you were over-invested, or were surprised or uncomfortable reading the balances on your year-end account statements, take this gift the market has given you and reduce exposure to the markets. Even if you weren’t, ask yourself this: should I be taking some profits off the table? This is not a recommendation to buy or sell anything; only you and your financial planner can make that decision (we can help!)

I’m personally not so confident we’re going to just continue to rally without a near term pullback, and therefore I continue to position client and my personal portfolios with a defensive tilt. Mind you, I see nothing in the price action to tell me that a pause is imminent, but severe downside action can change that and repossess weeks’ worth of gains in a matter of a day or two. This, however, should be meaningless to investors with a long-term investing horizon.

While we have participated robustly in this rally since 2018, I believe that the market’s ability to achieve notably stronger gains from here is somewhat questionable. And from a safety-first strategy viewpoint, the longer-term outlook is more ominous.

The recent inversion of the yield curve is a classic warning flag, regardless of whether it remains inverted over the intermediate term. And the simmering wage inflation pressures are not going to subside anytime soon, especially when initial claims for unemployment are hitting 50 year lows. That means the Federal Reserve might have to renege on their “no rate hike” promise before this year is over. Few on Wall Street are anticipating that the Fed might take away the low interest rate punch bowl again.

As Jim Stack of InvesTech Research warns, “One of the most difficult aspects of negotiating the twists and turns of a late stage bull market is keeping one’s feet objectively planted on firm ground. It’s hard to argue against positive economic reports, except with the historical knowledge that bull markets peak when economic news is rosiest. And with consumer confidence near the highest levels of the past 50 years, one would have to think that we are approaching a peak. That inherently leaves a lot of room for potential disappointment.”

Even if it means leaving a few dollars of market profits on the table, my safety-first approach leaves me cautious/defensive with an abundant level of cash and hedges for the time being. Now is a good time to take stock of your investment level, and decide for yourself whether you’re prepared for the next downturn.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Is “Smart Money” Really that Smart?

Ask ten people if they think they’re a good driver, and I’m willing to bet that most, if not all of them, will claim to belong to that camp. The other guy or gal is the bad driver, not me. But someone is causing all of those car accidents and traffic snarl-ups, so we can’t all be considered good drivers.

The same can be said about investors. We often hear financial pundits on TV talking about what the “Smart Money” is doing. Who are these smart people? What makes them so smart? And if they are smart, what are we? I won’t keep you in suspense: yes, you might be considered “dumb money”.

Defining “Smart Money”

Terms that Wall Street throw around such as “smart money” and “expert” can sound very alluring to us. Before we jump and listen to what they have to say, we should first find out more about what makes them so smart or deemed an expert. The truth is there is no standard definition.

In all my years in the industry, I still don’t know what makes someone a media proclaimed “expert” or “smart”. Based on my experience, an expert is someone who makes confident predictions and is right only about half the time. “Smart money” generally refers to a person/institution with a lot of money, but it can also be used to describe people who run complex investment schemes (so complex that we common folk can’t understand it).

Forget Smart Money; Be a Smart Investor

Historically, “Smart Money” has not translated into outsized returns. Their returns are often in line with straightforward (not complex) investment strategies. In fact, the Barron’s Roundtable of Smart Money in 2018 handily underperformed the markets (and that was not an anomaly).

Wall Street Journal personal finance writer Jason Zweig recently opined, “the only smart money is the money that knows its own limitations.”

Legendary investor Warren Buffett said, “What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.”

As Zweig writes, it’s surprisingly easy to find instances where smart money managers can sometimes behave just as irrationally as individual investors who chase prices up to parabolic levels, and join in the panic at the lows. They are, after all, humans just like us, subject to the laws of fear and greed innate in all of us.

Let’s not forget that professional hedge-fund analysts, fund-of-fund managers and other such purportedly expert advisers, put thousands of investors into Bernard Madoff’s Ponzi scheme. They ultimately lost millions of dollars of clients’ money.

Another example: among the eager clients of the Foundation for New Era Philanthropy, one of the most notorious fraudulent investment schemes of the 1990s, were such billionaires and philanthropist as Laurance Rockefeller, former Goldman Sachs co-chairman John C. Whitehead and ex-U.S. Treasury Secretary William E. Simon.

Smart investors recognize that it’s OK they don’t know everything. And neither do the “smart money” nor the so called “experts”. Once we define the limits of our knowledge and understanding, we can focus our time and energy on what matters most – those things we can control.

As investors, we can control our decisions and reactions to uncontrollable market events. Following a disciplined and deliberate decision-making process is one of the smartest things investors can do. Working with a fee-only advisor can not only help you sort through all of the investment options and risks, but can also keep you from panicking at the lows, and feeling overly euphoric at the top.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Source: (c) 2019 The Behavioral Finance Network, used with Permission

To Catch an Identity Thief

Who among us hasn’t bemoaned the series of security questions on the phone as we try to talk to representatives about our accounts or access them online? Date of birth, the last four digits of our social security number, secret words and answers to seemingly ridiculous questions that can all be recited in our sleep. Is all that necessary?

In a word, yes.

Identity theft continues to be a common type of fraud in the U.S. The rise of social engineering has allowed criminals to become more sophisticated with their methods. But you can help protect yourself by staying aware, and taking extra precautions when verifying your identity.

What is identity theft and how does it happen?

Identity theft occurs when one person uses another person’s identifying information to assume their identity for the purpose of committing fraud or other crimes.

This type of fraud can be executed in person, verbally, or electronically, and can be familial (attempted by a family member) or external (attempted by an unknown party). Electronic channels are the most common paths for identity theft, and fraudsters can use several different methods to steal a victim’s credentials, such as phishing or via malware.Identity theft falls into two categories:

1. Low-tech methods: These may include posing as a trusted person for the purpose of financial gain, or to access information. For example, the identity thief may contact a call center or call your advisor directly, posing as you, their client.

Other low-tech approaches include taking physical possession of devices, ATM cards, financial statements, and other materials that contain your financial information.

2. High-tech methods: Once identity thieves have the information they need, they may log into your account to gain additional data, intercept verification codes, redirect devices, initiate withdrawals, change account details, and more.

Identity theft is a broad topic, so these examples are not all-inclusive, and may overlap with other methods that also result in a loss or theft of personal information.

Identity theft may be one of the oldest techniques in the fraud book, but it remains prevalent, especially in a world where much more information is shared than in the past. In 2017, the number of identity theft victims in the U.S. reached 16.7 million—an 8% increase from the previous year.

Contrary to what some may believe, not all fraudsters are geniuses who can outsmart advanced technology. Some are more unassuming, but know how to take advantage of people’s natural inclination to trust others. Meanwhile, these criminals are getting more sophisticated in their attacks by using stealthier, more complex schemes.

Recently, brokerage firm Charles Schwab has seen an uptick in impersonation calls, with fraudsters becoming more sophisticated in their attempts to gain access to client accounts through social engineering. Social engineering is the use of deception to manipulate others into divulging personal information or transacting on a client account. Typically, an unauthorized individual assumes the identity of a client, or tricks another person into believing they are a trustworthy source.

Schwab is noticing that criminals are leveraging stolen client information gathered from other companies’ breaches, purchased from the dark web, or gleaned from social media to pose as clients. Impersonators use these details—in combination with other tactics—to appear more legitimate. For example, they may spoof the client’s phone number on caller ID, or use a voice changer to sound like the client. These imposters often are calling to update account information such as email address, password, or phone number, or to initiate or approve money movements.

Social engineering is swiftly becoming a universal threat—one that can have big impacts. It is a clever, often misunderstood, and overlooked form of identity theft because, while it still requires a certain amount of finesse and skill, it doesn’t require the technical expertise necessary to hack into a major bank’s computer network and reroute funds. Think of the con artist on the street whom you never really see.

Social engineering may occur via phone, email, or social media. Often, the scammer will use skills such as charm, friendliness, wit, or urgency to build a sense of trust with the victim. This is intended to convince the victim to either release unauthorized information, or perform actions that benefit the scammer, such as sending money. It is also very common for the scammer to visit social media sites to obtain identifying information to bolster their credibility.

Fraudsters will sometimes rely on human error to obtain additional information. For example, while answering a security question about previous employers, they may rely on a LinkedIn profile. If their first answer is incorrect, the fraudster will guess again and dismiss the incorrect answer by quickly saying something like, “Oh, I only worked there for three months, so I didn’t think that was the correct answer.” Despite receiving an incorrect answer initially, a customer service representative might not press further or ask additional security questions.

Fraudsters will also try empathy, such as pleading, “My daughter, Susan, was celebrating her birthday at the park today and is seriously injured. I’m calling from the doctor’s office, and they are requiring that I pay cash before she can be seen. It’s urgent that I access my account right now, but I locked myself out. Can you please help?”

Additionally, they may employ distraction techniques, such as a crying baby or other background noises, and ask the professional to repeat questions, claiming that they cannot hear or that there’s a poor connection. Usually, they’re hoping that the customer service representative gets frustrated or loses concentration.

9 Tips to Help Prevent Identity Theft

Knowledge and awareness can help you protect yourself against cyber-crimes such as identity theft or social engineering. Here are some best practices:

  1. Safeguard your financial information and your personal data with physical locking devices or strong electronic password protection.
  2. Limit whom you trust or share your personal information with.
  3. Use caution when sharing information and personal details on social media.
  4. Consider how you interact with others via email or phone, and be selective about disclosing details.
  5. Be aware of your surroundings when talking on the phone. Do not hold conversations regarding your finances in public places, and don’t use public WiFi to access financial accounts.
  6. Regularly review your account statements for transactions that are outside of your normal spending patterns or places.
  7. Employ strict authentication protocols that you follow with every account—no exceptions. For example, you may choose to require a verbal password or security questions for all accounts. Enable two-factor authentication on your e-mail accounts and all other accounts that allow it.
  8. Educate and train your family members to ensure that they understand social engineering, so they’re not the weak link in your security protocols. Kids should not advertise that their family is on vacation by posting photos or disclosing their location before they return home. That invites burglars to your home.
  9. Report your phone as lost or stolen to your cell phone company as soon as you realize it is missing, and ask them to suspend all services immediately to prevent interception of validation codes. Be sure to have an auto-lock password on your phone

Identity theft is often linked to hackers. Not all hackers use their skills for criminal activity though. A growing group of hackers help companies detect flaws in their cybersecurity systems or test employee training. The companies who hire these hackers are often shocked at how quickly their systems can be breached. Watch this video from CNN to see how it works.

As an investment advisory firm, our guard is constantly up for hucksters attempting to trick us into revealing information about our clients, or worse, initiating unauthorized transfers from their accounts. Insist that your own advisor verbally approve any non-conventional transfer request (especially wire transfers) that come via e-mail or other means that are not normal for him or her.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Believe it Or Not

A longtime favorite line that I like to use when people ask me what the market or economy are going to do in the near future, is to say “Sorry, my crystal ball is in the shop.”  Or I’ll repeat what famed baseball manager Yogi Berra once said: “It’s tough to make predictions, especially about the future.”

That doesn’t stop others from trying to be a broken clock by predicting early and often. And so we’re into that exciting time of year when all sorts of market predictions are made by people who are mostly claiming that they knew the future and have accurately predicted it over a great track record.  But if you’re smart, you’ll turn off the TV/radio or move on to the next article.

The truth is that none of us can accurately predict the movements of the markets.  If we could, then we would always make trades ahead of market moves, and it wouldn’t take long before that amazing prognosticator with the working crystal ball would have amassed billions off of his or her stock market trades.  Have you read about anybody doing that lately?

Most of these people are employed at think tanks or sell their predictions to credulous investors.  Would they need that paycheck or your hard-earned subscription dollars if they had the ability to make billions just by checking the ‘ole crystal ball a couple of times a day?

A recent article by frequent blogger and wealth manager Barry Ritholtz offers some rather amazing data on people in the prediction business.  You may know that the cryptocurrency known as “bitcoin” is now worth about $3,500—way WAY down from the start of 2018.  So how well did the people in the prediction business foresee that downturn?

Not well.  In his article, Ritholtz noted that Pantera Capital predicted that Bitcoin would be selling for $20,000 by the end of 2018.  Tom Lee of Fundstrat was more bullish, forecasting that bitcoin would breach $25,000 by then.  Prognostications by Anthony Pompliano, of Morgan Creek Digital Partners, were still more bullish, predicting bitcoins would be worth $50,000 by the end of last year.  John Pfeffer, who describes himself online as “an entrepreneur and investor,” anticipated $75,000 bitcoins by now, and Kay Van-Petersen, Global Macro-Strategist at Saxo Bank, one-upped everybody with his prediction that bitcoins would be worth $100,000 by December 31st of last year.

Ritholtz offers other examples, like radio personality Peter Schiff telling listeners since 2010 that the price of gold has been heading toward $5,000 an ounce.  (It’s riding around $1,300 currently.). Jim Rickards, former general counsel at Long-Term Capital Management, is more ambitious, telling his followers that he has a $10,000 price target for an ounce of gold.

If you happen to follow former Reagan White House Budget Director David Stockman, you have been told that stocks are going to crash in 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2019.  Someday he’s going to be right, and will no doubt be touting his amazing prediction abilities (that broken clock is right twice a day).

When you read about a prediction, instead of reaching for the phone to call your financial advisor, try writing the prediction down on a calendar or reminder program like the app followupthen.com, and come back to it a year later.  Chances are you’ll be less impressed then than you might be now.

The three things that work best for investors: time in the market, portfolio diversification, and risk management. Soothsayers need not apply.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Source:

https://ritholtz.com/2018/12/fun-with-forecasting-2018-edition/

TheMoneyGeek thanks guest writer Bob Veres for his contribution to this post

What’s Going on in the Markets: December 22, 2018

Paraphrasing a popular novelty Christmas song by Elmo and Patsy … “Santa got run over by a rein-bear, walking out to Wall Street on Christmas Eve…”

Unless you’ve been on an island somewhere and blissfully disconnected, you probably already know that the stock market had one of its worst weeks since 2011. The S&P 500 index lost about 7% in one week, while the NASDAQ and Russell 2000 indexes lost over 8%. With the exception of bear market funds, government treasury bonds and cash, there was virtually nowhere to hide. It’s the worst December to date since 1931.

The proximate “cause” of the market angina this week was the federal reserve’s (the “fed”) 1/4 point rate hike amid signs of growth slowing around the world. While odds heavily favored the well telegraphed December rate hike, it’s puzzling why Wall Street traders often act surprised when it actually happens. Perhaps it was the fed chairman’s steadfast insistence on two more possible rate hikes next year, and continued monetary tightening via $50B of bond sales per month.

Before the actual announcement at 2 PM ET on Wednesday, we could almost see glimmers of Santa’s sleigh in the distance, as the market was starting to finally bounce after several days of selling pressure. Alas, that sleigh did a prompt U-turn as Federal Reserve Chairman Jerome Powell struck a hawkish tone during his press conference following the rate hike announcement. Powell may turn out to be the Grinch who stole the 2018 Santa Claus rally.

Raising interest rates is the fed’s way of preventing an economy from overheating and leading to high inflation. Higher interest rates tend to slow the rate of corporate/company hiring and purchasing of capital goods and equipment. But many corporate executives were already complaining about trade wars, the political rancor in Washington, and of course, the end of lower interest rates.

In reality, the economy is showing some signs of growth slowing, but not contracting (i.e., negative growth). It’s contraction in the economy that translates to a recession, something that the weight of evidence still points to no recession on the horizon. Of course, that could change at any time.

Regardless of the cause, the market has been on a great run (bull market) since March 2009, more than quadrupling since the 2009 bottom. With the average bull market usually lasting about 4-5 years, this one certainly deserves some rest in the form of a healthy pullback. Unfortunately, it always feels bad when it happens, no matter how prepared we are.

There are negatives and positives in our economy to push/pull on the markets:

Negatives:

  1. The S&P 500 Price to Earnings ratio (P/E), a measure of stock valuation, was at a historically overvalued extreme earlier this year, which warranted caution. While overvaluation alone does not end a bull market, it does dramatically increase the downside risk in stocks. The recent market pullback has caused P/E valuations to come down, but at 19.9 they remain above the long-term average. At this juncture, it’s too early to say if valuations will continue to subside as prices move lower, or if a drop off in earnings will keep them at high levels.
  2.  Housing prices had/have risen too high, and these elevated prices were/are going to be incredibly hard to maintain if interest rates continue to increase. It’s too early to officially declare that U.S. housing is, or was, in a bubble. However, real estate is starting to unwind both in terms of prices and activity – with some of the highest-growth areas feeling the most pain. Housing is incredibly important to the health of the U.S. economy. If housing metrics continue to decline, this will have negative implications for the economy and the markets.
  3. In the past, the combination of a declining growth outlook and a rising rate environment (called tightening) has generally had dire consequences. Out of the past 11 tightening cycles, nine have resulted in a recession, while only two led to an economic soft landing. Based on history, the current investment landscape is tilted towards a negative risk/return relationship as stock prices remain susceptible to future downward pressure.

Positives:

  1. Consumer Confidence has rarely been more ebullient, with recent Conference Board survey results at the most positive level in 18 years. Although this indicator is
    considered to be leading, and usually rolls over before a recession, it’s interesting to note that past stock market peaks have frequently coincided with excessive levels of consumer optimism. Consumer confidence is essential to economic health, because a confident consumer isn’t afraid to spend or invest in new ventures to keep the economy growing.
  2. The Institute for Supply Management (ISM), which conducts surveys of business activity,  has also been persistently strong this year, and remains near the highest levels of this 9-year expansion. The Business Activity Index for the Service Sector, which accounts for about two-thirds of the U.S. economy, is back at the highest level since 2004. In manufacturing, the ISM Purchasing Managers Index is also hovering near its post-recession highs. Neither of these indexes are currently showing any signs of distress or hints of an impending recession. Whether the current steady outlook will continue to support this economy in the coming months is a critical question for 2019.
  3. Jobless claims and the unemployment rate are both low by historical standards. Monthly job creation is strong, limited only by the number of available qualified candidates for many jobs. If there’s one item that pressures the fed to raise interest rates the most, it’s wage inflation, which we are starting to see as the demand for workers outstrips supply.
  4.  The fed’s steadfast insistence on raising interest rates, in the face of clear evidence that growth is slowing, is perhaps a sign that they see this as a temporary economic condition that can withstand further rate hikes. Why would the Federal Reserve still be tightening (with the 9th rate hike of this economic cycle made this week) if there could be major trouble on the horizon?
  5. Signs of cooperation are emerging between the U.S. and China to end the trade wars and end the tit-for-tat tariff jabs. Both countries’ markets would celebrate at least some resolution to this tiff.

Now What?

So what’s one to do now that the market has taken a big tumble from new highs reached just this past September? The decline has been swift, brutal and almost immune to bounce attempts. In an algorithmic driven and high-speed trading market, risk happens faster than any time before. If you haven’t lightened up on your holdings yet, it’s probably too late to sell, but consider taking some chips off the table if Santa does come to call on Wall Street and rally after all. After more than a 9 year bull run, it’s prudent to not give all your profits back and wait for the next bull market to get back to even. This is not investment advice, as I don’t know your financial goals, your time-frame or your risk tolerance. But please feel free contact us to see if we can help you.

For our clients, we came into the market sell-off with lots of cash and hedges in the form of inverse funds and options. We have continued to add to our hedges as this market attempts to find a bottom, while also nibbling on some new positions that we expect to hold for the long term. So far, we have not been profitable on those nibbles, but we aren’t buying them for the next week or next month. Buying a little at a time on the way down is the way it should be done for long term investors. Remember the old stock market saying: buy low, sell high.

What’s Next?

My crystal ball continues to be in the shop, so it’s tough to say what comes next. We are severely oversold, so a wicked and lasting bounce/rally could arrive at any moment. But while investor sentiment is awful, which is usually a contrary indicator to support the start of a market rally, so far there has been no price action evidence to support one.

Many hedge funds have had abysmal performance this year, and are forced to return billions of dollars to clients this quarter.  They are either closing and/or answering to client redemption requests that have to be met by year-end, so that could continue to pressure the market if their activities aren’t done yet.

A lot of technical damage has been done to the markets, so I don’t expect the next rally to be the one to ramp to new highs. Far from it.  Don’t be the proverbial mouse to rush into the first market rally trap. Patience is essential–be the second mouse to actually grab the cheese. Any durable rally will last for weeks, if not months, you won’t miss out.

Unless the next rally shows signs of a longer term durable bottom, I may be using any strength during the coming weeks to further lighten up positions and add more hedges in anticipation of a sub-par 1st quarter earnings season, and as all the people who didn’t want to sell for tax reasons in 2018, decide to dump their shares in January.

That said, I’m starting to see some small signs of the potential emergence of a new bull market, sometime after the 1st or 2nd quarter of 2019. Any one spark could ignite this market to the upside (e.g., China trade agreement, signs of an interest rate pause, government shutdown resolved). So I wouldn’t be cashing out of this market given that you could miss the big rebound that could start at any time. This is all speculation on my part, one that you shouldn’t rely on for your own investment decisions. My outlook could be wrong, changes often, and could be different, even before the Christmas tree comes down.

Markets Got you Down?

If you’re scared or stressed about the markets, here’s some advice from Jim O’Shaughnessy, author of several books on investing, including the best seller, What Works on Wall Street:

“Take a deep breath, sit down, and write down how you feel about what is happening in the market. Be free-form, and be honest. If you feel a pit in your stomach, write about it. If you feel jittery, write about it. If you think this is the next financial crisis, write about it. If you feel like selling out and going to cash, note that too. Write about every worry, frustration and uncertainty you are currently experiencing. Then date it, and put it away.

Chances are very good that when you read it again 12-18 months from now, you’ll be shocked you felt this way. Your brain will do somersaults to try to convince you that you *really* didn’t feel everything you wrote, because things will have calmed down.

Corrections and bear markets are a feature, not a bug of the stock market. Without them, there would be no equity risk premium. Look back at EVERY OTHER market decline and remember, people were feeling like that was the end too. It wasn’t then, it isn’t now. This is actually a healthy, if painful in the short-term, action. Most important, remember, this too shall pass.”

I couldn’t have said it better myself. And as I often quote, Peter Lynch, legendary manager of the Fidelity Magellan fund said that “The stock market is a great place to make money, as long as you don’t get scared out of them.”

I’d like to take this opportunity to wish you very happy holidays and a grand New Year. I appreciate my readers very much.

You can say there’s no such thing as Santa, but as for me and the bulls, we believe.”

Merry Christmas!

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

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